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Brexit

Following weeks of big stakes on betting markets without that much volatility, exciting things are definitely afoot. Polls clearly identify a shift in favour of LEAVE and, despite daily waves of resistance, it is moving closer by the minute to REMAIN, the longstanding favourite.

This is a very positive development for my various betting positions, the latest of which was announced on Twitter last week.

As that list shows, the bad result for me is over 55% for REMAIN but I am finding it increasingly hard to envisage that scenario, and see no sense in covering it – at least yet. Right now, LEAVE has all the momentum in both polls and narrative. REMAIN seem in disarray, with their message struggling to cut through. Therefore, as announced just now on Twitter, I’m backing LEAVE at 2.5.

I suspect there is an in-built bias towards REMAIN in the market, for at least two reasons. First, a hunch that traders are simply covering positions on wider financial markets, without necessarily believing in this side of the trade. The swings back after logical drifts have been so immediate, overwhelming and hard to justify on analytical grounds.

Second, in expectation of a late swing towards the status quo. People remember the last General Election, when the most seats markets correctly strengthened behind the governing Conservatives despite polls suggesting otherwise. Or the 2014 Scottish Independence Referendum, which went from a virtual dead-heat a week out, to 55-45 in favour of maintaining the status quo.

Scotland offers so many parallels, and it may well be that change voters are scared off at the last minute. A really bad day for the pound or stock markets could generate dramatic headlines and prove a gamechanger. Perhaps the realised threat of Brexit will better motivate REMAIN supporters to turn out.

However another Scottish parallel is very bad news for REMAIN – namely the inability to win over Labour voters. Part of this may be to do with arch-enemy Conservatives leading the debate – although Jeremy Corbyn, Ed Miliband and Gordon Brown have all tried to be heard. I prefer this explanation from Owen Jones – that those that feel they have the least economic stake in the status quo are minded to abandon it.

It may well be that the main market is now wrong and LEAVE should be at least level pegging in the betting. The polls, narrative and odds seem certain to move in that direction for the next few days. Therefore, this is the perfect time to cover what would be a fantastic result – narrow REMAIN win – whilst increasing the risk on a decisive REMAIN win.

So the next bet is a 50 unit bet on LEAVE at 2.5 – see the list below for the new overall position. I should add to readers who haven’t followed all the earlier bets that the original 50-55% band still offers great value at 3.2. Combined with LEAVE, this means we can back under 55% at around 1.4. Without a gamechanger, that looks increasingly like banker material.

Updated Brexit Profit/Loss (prior to Betfair’s commission, to be calculated at the end).

Trying to find a cheap, value punt in the Brexit markets has not been straightforward. So far as the main result market is concerned, the scope for short-term trading has been limited and taking a confident view involves a sizeable risk, in a referendum which is far from clear cut.

Remain, for example, has traded between 1.45 and 1.16 since the campaigns began in earnest. So if you fancy the favourite winning – as I do – a big stake is required. However as I’ve argued before, the potential for differential turnout tempers confidence and leads me to think Remain will underperform the polls.

Imagine, for example, that we’d got involved last week, when Remain seemed to be pulling ahead and shortening on betting markets, at say [1.25] (80%), before it peaked at 86%. A couple of contrary polls later, and that rating has dropped to 75%. What felt like a solid trade, anticipating an obvious market move, would suddenly be a negative position. Not my kind of betting – too much risk for too little reward.

Again to repeat my sole existing trade, a preferred market is on Remain’s vote share and I certainly wouldn’t deter anyone from taking the 3.55 now about 50 – 55%. However the recent odds movement presents an excellent value opportunity to hedge between the main result market and the handicap giving Leave a 2.5% start.

Whereas Remain can be backed at 1.34, Leave is 2.9 to get over 47.5%. Backing both for proportionate stakes equates to odds of [11.0] about Remain getting between 50 and 52.5%. See the calculations below.

Back Remain 90 units @ 1.34

Back Leave Over 47.5% 41.6 units @ 2.9

So, if Remain gets more than 52.5%, we make 30.6 units on the first bet, but lose 41.6 units on the latter, meaning an 11 unit overall loss. Likewise if Leave wins, we lose 90 units on the former, and win 79 on the latter, losing 11 units overall. (These precise stakes are to yield an equal return and should be altered accordingly with price changes).

But if Leave gets between 47.5 and 49.99% – accounting for half of the preferred band that I reckon represents a good value 28% chance – we will win both bets, yielding 110 units profit from an initial risk of 11 units. In short, a 10 to 1 chance or just 9%. While these odds are around, this simply must represent value and would still do so even if the combined odds shortened to 7 or 8 to 1.

While the Brexit markets are enormous, they have been frustratingly static for months. That, I suspect is about to change, and that means we need to act fast in reversing our latest position. Therefore, as advised on Twitter, I’m cancelling my recent bet on LEAVE to get over 47.5%, taking a two unit loss.

Two of the last three polls have shown massive leads for REMAIN of 15% and 18%. That is a marked change from recent years, and probably suggests a trend. Perhaps the government’s transparent Project Fear is working, or perhaps the language and tactics of the LEAVE campaign are backfiring.

Perhaps REMAIN are simply winning the argument on merit, although I’m sceptical that much deep, meaningful discussion is taking place outside the motivated minority. There is little in any of the media coverage to inform the neutral voter.

I still take the view that LEAVE will out-perform the polls due to differential turnout, perhaps even more so if REMAIN is seen as a certain winner. I’m happy with my initial bet on 50-55% for Remain at 3.9.

However this market is largely driven by polls and that means it will almost certainly move against us , at least in the short-term. As always the key to making an overall profit is correctly predicting the trajectory of it, including taking a loss when prudent. This 2 unit loss is small price to pay for getting out of what looks like a poorly timed bet.

Five weeks out from our most important vote in over 40 years, the detached nature of political conversation says much about the condition of UK politics.

On one hand, a substantial minority are deeply engaged in the Brexit referendum. It is the central political discussion among the type of people that care about, follow or participate in politics, that vote reliably in local elections. Few are undecided. Many made their mind up decades ago.

On the other, there is the wider electorate. A vast number of whom are undecided and complain about the lack of reliable, neutral information. Another vast number have no interest in politics and aren’t even registered to vote. Anecdotally, I see no evidence yet of the Brexit debate capturing their imagination.

Plenty of these groups will, of course, take more interest as the date nears. Brexit will dominate media coverage during the final fortnight and the debates will surely attract big audiences.

The behaviour of the unmotivated and undecided will ultimately prove decisive, and there’s a strong logic that suggests they will tip the balance in favour of REMAIN. The effect of every main political party besides the unrepresentative UK Independence Party, international financial institution, foreign government, most big businesses and trade unions warning of dark Brexit consequences must take its toll.

A narrow win for REMAIN, following a fear campaign against abandoning the status quo would fit the historical trends of UK politics. In the 2014 Scottish Independence Referendum, we saw a late swing to NO after similar dire predictions of economic gloom and uncertainty.

Likewise, the default campaign narrative of every General Election is for the government to fearmonger about the opposition. The British electorate has consistently favoured at least the image of pragmatism and stability over ideology and radical change.

However if the British do vote to stay, it will be out of pragmatism rather than an emotional connection to the EU or a belief in the project. In that sense, it is profoundly different from the Scottish referendum, where unionists are proud to be members of the UK. To the British, EU membership has always been fundamentally about trade.

This indifference presents a problem for REMAIN backers. It stands to reason that Brexit supporters will vote. They’ve waited 40 years for the chance and David Cameron called this referendum to appease them.

Brexit supporters also tend to be older, and much likelier to vote in all types of election. Historically, they have made up over 40% of the electorate, sometimes leading on the question. We haven’t seen a poll for a few days but three of the last four showed LEAVE ahead, on at least 45%, with around 11% undecided.

In contrast, REMAIN supporters tend to be younger and less likely to vote. There are plenty of potential distractions in June to prevent them from doing so. The Euro 2016 football championships and Glastonbury Festival are taking place at the same time. There is no greater scourge of pollsters than differential turnout and I wonder how accurately they will be able to measure it.

We also shouldn’t assume that the government’s fear campaign will be so effective. All across the world, we see that voters distrust the government and establishment. They are ever more savvy about scaremongering and apparently ever more inclined to trust outsiders.

Nor do the leading REMAIN politicians hold much sway. David Cameron and George Osborne are reduced figures since winning the election last May, and are involved in an increasingly bitter fight with at least half of their party. Beyond Conservatives, neither are popular. Cameron’s claim that leaving the EU could lead to war, or Osborne deriding Brexiteers as conspiracy theorists could do more harm than good.

Backing LEAVE to earn over 47.5% at 2.5 strikes me as much better value than 3.4 to win the referendum with over 50%. On the same turnout as the last election, the differential equates to around 800,000 people. The bet could win despite a relatively decisive defeat.

Given that LEAVE is already polling regularly in the mid-forties, they would not need to win many of the undecideds at all to reach 47.5%, even before differential turnout comes into play. The last split without undecideds showed them winning 51-49.

Previously, I’d only had the one bet, on REMAIN getting between 50 and 55%. As detailed below, this new bet effectively changes my trading position to LEAVE getting anything over 45%, with anywhere between 47.5 and 50% earning double the profit, as both positions will win. A cover bet to secure an overall profit should be available at a later stage. Watch out soon for a more detailed explanation of my trading strategy, and how I expect it to develop over the next five weeks.

In ten week’s time, the UK will vote on arguably it’s most important political decision in over 40 years, regarding membership of the European Union. After considering and debating the question for 20, the time has come to bet on it.

I’m still loathe to make a definitive prediction about the result. The current odds – 1.48 (68

%) for Remain, 3.05 (33%) for Leave, strikes me as more or less accurate.

That reflects polls showing Remain slightly ahead with a large number of undecideds. In the four conducted over the last month with no more than 10% undecided, Remain was ahead by an average 4%.

There is no obvious short-term trading angle on that main Brexit market. If the polls continue to show Remain ahead, those odds will slowly shorten throughout the next ten weeks. However as we saw in the Scottish Independence Referendum, a rogue poll or even a short-term trend can panic the political establishment and spook the markets. Why take the risk at such an early stage, especially when there are plenty of other betting options?

As always, my primary aim is less about picking an eventual winner, than correctly predicting the trajectory of the market. Get the early value, cash out later. The best place to do this is in the Remain Vote Percentage market.

The early odds suggest a wide-open contest, with extreme one-sided results at big, but not dismissive odds. I simply cannot see it happening. The twenty-odd percent of undecideds may be precisely that – the lack of neutral information is a common complaint – but most of the rest, in my view, are pretty fixed.

The UK has a long, deep history of Euroscepticism, particularly among Conservatives but also across society and within the wider national conversation. The press is overwhelming Eurosceptic. UKIP – fundamentally an anti-EU protest party with a toxic image and very unfavourable approval ratings – won 4M votes at last year’s General Election.

The subject has been polled for many years, with the percentage for Leave averaging somewhere in the forties, occasionally ahead. Having spent a lifetime taking a stance on this deep and emotive question, Eurosceptics are not going to miss their once in a lifetime chance to vote on it. They are surely likelier to vote than Remain supporters.

That doesn’t mean they will win the referendum but 40% looks an unambitious floor. If so, that rules out about 17% of the book from the top-three bands on Remain Vote Percentage.

My current prediction is 52-48 to Remain, basically in line with the polls. Undecided voters have a tendency to swing late towards the status quo. This small segment of the electorate could be susceptible to Project Fear from the government, opposition, big business and trade unions. The UK’s median political outlook is ‘small c’ conservative, risk-averse. However lower turnout among Remain supporters will limit the effect of that gamechanging advantage.

That prediction is bang in the middle of my selection for Remain Vote Percentage. 50.01 – 55% is available to back at 3.8, equivalent to 26%. A cheap price about what is an extremely conventional prediction. Unless the polls change quite dramatically, these odds are only going to shorten.